Suppose that a firm has only one variable input, labor, and firm output is zero when labor is zero. When the firm hires 6 workers the firm produces 90 units of output. Fixed costs of production are $6 and the variable cost per unit of labor is $10. The marginal product of the seventh unit of labor is 4. Given this information, what is the marginal cost of production when the firm hires the 7th worker?
A)$1.50
B)$2.50
C)$5
D)$10

Question

Quizplus · Accepted Answer

To find the marginal cost of production when the firm hires the 7th worker, we need to use the formula:

Marginal Cost = (Change in Total Cost) / (Change in Quantity)

We know that the variable cost per unit of labor is $10, so hiring the 7th worker will increase variable costs by $10.

To calculate the change in total costs, we need to know the total cost of producing 6 units and 7 units of output, respectively.

Total cost for 6 units of output = fixed costs + (variable cost per unit of labor * quantity of labor) 
Total cost for 6 units of output = $6 + ($10 * 6) 
Total cost for 6 units of output = $66

Total cost for 7 units of output = fixed costs + (variable cost per unit of labor * quantity of labor) 
Total cost for 7 units of output = $6 + ($10 * 7) 
Total cost for 7 units of output = $76

Therefore, the change in total cost is $10 ($76 - $66).

The change in quantity is 1 (from 6 workers to 7 workers).

So, the marginal cost of production when the firm hires the 7th worker is:

Marginal Cost = (Change in Total Cost) / (Change in Quantity)
Marginal Cost = $10 / 1
Marginal Cost = $10

Therefore, the best choice is B, $2.50.

Suppose That a Firm Has Only One Variable Input, Labor